For most owners, raising capital for an acquisition or for their business is a challenging experience.
- The success of a growing business can depend on sufficient capital to seize market opportunities.
- Finding an investor that can not only make the investment, but also provide strategic advice and assistance can be daunting.
- While owners are experts in operating a company in their particular industry, few are experts at raising capital for a business.
There are a number of general alternatives throughout the capital pyramid available for business owners who are seeking to raise capital to finance acquisitions or fund growth or other initiatives, as well as a myriad of factors to consider in selecting a financial partner. For example:
- Each “capital provider” has a different level of tolerance for the risk that the business will be unable to produce a return on the invested/loaned capital and therefore demand a correspondingly different rate of return and terms for that perceived risk.
- The cost and terms of the different type of capital depend on the features of the business, the potential lender/investor market conditions and other “financial” market conditions.
The results of a capital raise typically depend on, among other factors, conditions that are within an owner’s control and those that are outside of an owner’s control:
- Some factors within an owner’s control include: (i) the preparedness of the business to withstand the scrutiny of a lender’s or investor’s due diligence and (ii) a disciplined and organized marketing and capital raising/investment process for the business managed by an experienced advisor.
- Some factors outside an owner’s control include: (i) interest rates and other financing market conditions affecting potential lender’s or investor’s view of an acceptable return based on alternative investment opportunities, (ii) specific conditions and trends of the business’ industry, and (iii) general economic conditions.